M/S. SPENTEX INDUSTRIES LTD. vs. COMMISSIONER OF C.EXCISE

C.A. No.-001978-001978 - 2007Supreme Court09 October 2015Bench: A.K. SIKRI ROHINTON FALI NARIMAN24 pages
For Petitioner: RAJAN NARAINFor Respondent: B. KRISHNA PRASAD
AI SummaryAllowed

What were the facts?

The appellant, M/s. Spentex Industries Ltd., manufactures polyester cotton blended yarn and polyester viscose blended yarn. The assessee paid excise duty on both the raw materials (intermediate products) and the final manufactured products. These final products were then exported. The assessee filed rebate claims under Rule 18 of the Central Excise Rules, 2002, for the excise duty paid on both the inputs and the final exported goods. The Deputy Commissioner rejected the rebate claims. The Commissioner (Appeals) allowed the assessee to choose one of the two rebate claims (either on final product or on inputs). The assessee's revision application before the Joint Secretary was allowed, granting rebate on both. The Revenue challenged this in the High Court, which reversed the Joint Secretary's order, upholding the Commissioner (Appeals)'s view. The assessee appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the manufacturer/exporter is entitled to claim rebate of excise duty paid on both the inputs and the final manufactured product when such goods are exported. The Court reasoned that the legislative intent behind Rule 18 of the Central Excise Rules, 2002, is to neutralize the burden of domestic taxation on exported goods, thereby promoting exports. The Court observed that while the word 'or' is normally disjunctive, it can be read as 'and' when the context and the manifest intention of the legislature require it to avoid absurd or unintended results. The Court found that a literal interpretation of 'or' in Rule 18 would lead to a situation where exporters who pay duty are disadvantaged compared to those who export without payment of duty under Rule 19. Therefore, to give effect to the clear intention of the legislature to provide relief to exporters, the word 'or' in Rule 18 was interpreted as 'and'. The Court relied on precedents like State of Bombay v. R.M.D. Chamarbaugwala and Mazagaon Dock Ltd. v. The Commissioner of Income Tax and Excess Profits Tax to support this interpretation. The impugned judgments of the High Court and lower authorities were set aside. The appeals were allowed, granting the full rebate claimed by the assessee.

What were the issues?

1. Whether the manufacturer/exporter is entitled to a rebate of excise duty paid on both the inputs and the manufactured product when the manufactured product is exported, under Rule 18 of the Central Excise Rules, 2002, read with Section 11B of the Central Excise Act, 1944 and Notification No. 19/2004-CE(NT)? Assessee's Contention: The assessee argued that the legislative intent behind Rule 18 and related provisions, including Rule 19 (export without payment of duty), is to neutralize the burden of domestic taxation on exported goods. They contended that the word 'or' in Rule 18 should be interpreted as 'and' to give effect to this intent, allowing rebate on both input duty and final product duty. They relied on the objective of promoting exports and the principle of providing a level playing field. They also referred to various notifications and circulars, including Circular No. 129/40/95 dt. 29.09.95. Revenue's Contention: The Revenue contended that Rule 18, by using the word 'or', permits rebate on only one of the two categories: either duty paid on excisable goods or duty paid on materials used in their manufacture, but not on both. They relied on the literal interpretation of the word 'or' and the orders of the lower authorities, including the High Court.

Which sections of the Income-tax Act were involved?

Section 11B,Section 35EE,Section 37

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
Page 1 JUDGMENT REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 1978 OF 2007 M/S. SPENTEX INDUSTRIES LTD. ...APPELLANT VERSUS COMMISSIONER OF CENTRAL EXCISE & ORS. ...RESPONDENTS W I T H CIVIL APPEAL NOS. 2025-2026 OF 2013 CIVIL APPEAL NO. 2027 OF 2013 AND CIVIL APPEAL NO. 10534 OF 2013

J U D G M E N T A.K. SIKRI, J. In all these appeals, the basic question of law which arises for consideration is as to whether or not the manufacturer/exporter is entitled to rebate of the excise duty paid both on the inputs and on the manufactured product, when excise duty is paid on a manufactured product and also on the inputs which have gone into manufacturing the product and such manufactured product is exported? 1

Page 2 JUDGMENT 2) We may point out at the outset that, as per the scheme provided by the relevant Rules framed under the Central Excise Act, 1944 (hereinafter referred to as the 'Act') two options are admissible in respect of exemption from excise duty which is to be given when the goods manufactured are meant for export and are actually exported. A manufacturer/exporter can either export the said goods witho

The order continues below.

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